Business news 2nd June 2024

Business news that we thought would interest our members.

James Salmon, Operations Director.

TAX

Starmer’s VAT plans risk strikes, more closures
Unions are in revolt over Sir Keir Starmer’s plans to charge VAT on private school fees with the National Education Union saying they would not rule out strike action in order to “defend the terms and conditions of those working in independent schools.” Elsewhere, Patrick Roach, general secretary of the NASUWT teaching union, told Labour to “think through the consequences” of the policy on the state sector, which is suffering a teacher supply crisis, serious underfunding and underinvestment. Emma Thompson, partner and head of employment at law firm Thackray Williams, said schools are already restructuring due to a fall in pupil numbers as parents anticipate a Labour government. Meanwhile, the Independent Schools Association president Lord Lexden has told Labour to scrap the policy if the OBR forecasts that it will ultimately lose the taxpayer money. Separately, Downham Preparatory School in Norfolk is the latest private school to close, blaming Labour’s plans. A third of its pupils have complex needs and founder and principal Elizabeth Laffeaty-Sharpe says the parents are “not rich people”, they’re ordinary: “They’ve got an old banger, they don’t go on holiday.” Finally, the Sunday Times reports on how state schools have been turning former private school pupils away as they are already over capacity.

Make use of tax-free allowances while you can
The Sunday Times’ Ali Hussain talks to experts about which allowances should be used ahead of the general election. analysis for the paper shows you can shelter more cash in Isas and pensions this year than at any time since the 2010-11 tax year – and make more on top through other allowances. Nimesh Shah, the chief executive of Blick Rothenberg, said: Many thresholds have remained frozen for years under the Conservatives, but for those willing to take advantage, and particularly pension savers, this year presents a window of opportunity to take advantage of the reliefs while they last.” Helen Morrissey from Hargreaves Lansdown said: “With a general election looming and the uncertainty of a potential reintroduction of the lifetime allowance, we expect more people to bring forward their pension funding over the coming months.”

Labour need to hike tax on wealth and capital gains
Colm Murphy and Patrick Diamond, both politics academics, advocate for wealth and new capital gains taxes in an opinion piece for the Observer. They say the task ahead for Labour “is to forge a politics of prudence that blends the commitment to social justice with a disciplined approach to the public finances.” Sticking to fiscal rules is the first objective. Then major tax reform should be undertaken. “There is an overwhelming economic and ethical case for higher taxes on wealth and for taxing capital gains at the same rate as income,” say Messrs Murphy and Diamond, who also call for a commission on UK tax reform to be launched to help convince the public that taxes are necessary to fulfil Labour’s progressive ambitions.
   

Tax raider Torsten Bell parachuted into safe Labour seat
Torsten Bell, the chief executive of the centre-Left think tank, the Resolution Foundation, has been parachuted into the safe Labour seat of Swansea West. The Sunday Telegraph notes that Bell has previously espoused a number 9of tax-raising measures, including capping tax-free Isas at £100,000 and lowering the VAT threshold for small businesses to £30,000. Sir Edward Troup, a former head of HMRC who is advising the party on tax, previously suggested the threshold should be halved. Jack Lopresti, deputy chairman of the Conservative Party, said of Mr Bell’s selection: “The writing is on the wall with the Labour Party.” With this “tax zealot” their choice of candidate “there can be no doubt what they truly stand for.”

PopCons insist: It’s not too late for the Tories
Panicked Tory MPs are calling on Rishi Sunak to pledge more tax cuts now to help save the party from oblivion at the general election. The Tory group Popular Conservatism, known as the PopCons, also calls for the abolition of the Office for Budget Responsibility, for the UK to leave the European Convention on Human Rights, the scrapping of the 2050 Net Zero emissions target, the tearing up of the Equality Act and reform of the civil service so it can no longer block government policy. Annunziata Rees-Mogg, the PopCons’ director of communications, says in a piece for the Mail on Sunday: “Core Conservative principles – small government, low tax, security and personal freedom – can still win votes.”
   

Beware Reeves’ views on IHT
The Sunday Express points to a 2018 pamphlet written by shadow chancellor Rachel Reeves which called for a range of tax reforms, including taxing all gifts. In Everyday Economy she wrote that IHT “needs to be either reset or shifted wholesale to a tax on the receipt of any gifts throughout a lifetime, making tax on all gifts equal and thus avoidance more difficult.” The paper’s Harvey Jones says Reeves should be taken seriously, “especially since she is packing her policy team with people like Sir Edward Troup, who is also red hot on IHT.”

INDUSTRY

ICAEW rejects claims of declining audit quality
The ICAEW has questioned research by the Audit Reform Lab that criticised audit firms for failing to issue warnings before three out of four major UK corporate collapses since 2010. The industry body points to Financial Reporting Council audit quality reports that “show the proportion of good audits increasing over the inspection cycles from 2018 to now.” ICAEW CEO Alan Vallance said this “contrasts with the conclusion of researchers at Sheffield University that there is an ‘appearance of declining quality.” He adds: “Carillion’s collapse in 2018 marked a watershed moment, and since then regulators, the audit profession and others have delivered substantial and significant improvements.” The ICAEW also states that the Audit Reform Lab fails to take into account the role of government which has failed to act on the “reforms that are urgently needed to “hold company directors to account for corporate failures.”

EMPLOYMENT

Sir Keir Starmer touts ‘wealth creation’ as his top priority
The Labour leader, Sir Keir Starmer, has announced a series of proposed employment support and welfare benefits reforms aimed at increasing the employment rate from 75% to 80%. In an election pitch to the middle class and middle ground, Sir Keir said his priority was wealth creation and getting more people into work to help bring down “the spiralling welfare bill that’s gone out of control under the Tories.” His pledge came after the Prime Minister outlined plans to give £20m in financial support to 30 towns over the next 10 years. The £600m policy is part of the Conservatives’ commitment to levelling-up across the country, Rishi Sunak said. Meanwhile, after a week of attention-grabbing stunts, Liberal Democrat leader Sir Ed Davey is taking the weekend off the campaign trail to spend time with his family.
Sky News   City AM   London Evening Standard  

Starmer pledges to curb immigration numbers
Labour leader Sir Keir Starmer has promised to slash migration levels in the UK by passing laws to ban law-breaking employers from hiring foreign workers and to train more Britons. Last year, net migration levels reached 685,000, more than three times higher than the figure at the time of the last election. Sir Keir told the Sun on Sunday: “Read my lips – I will bring immigration numbers down. If you trust me with the keys to No 10 I will make you this promise: I will control our borders and make sure British businesses are helped to hire Brits first.” The strategy would involve businesses applying for foreign worker visas having to train British workers.

PENSIONS

Six reasons why the state pension ‘triple lock plus’ will never work
The Conservatives have unveiled their “triple lock plus” policy, which aims to protect retirees from paying income tax on their state pension. The policy would raise retirees’ personal allowance every year in line with the triple lock, preventing them from paying tax on their state pension. However, the policy has faced criticism for adding to the growing expense of state benefits and fuelling intergenerational inequality. Analysis shows that pensioners would pay on average £600 less tax than workers under the pledge. The policy would also create a new tax trap for the very wealthiest pensioners, with an effective tax rate of 61.24% for those with a retirement income of £127,420 a year. The higher personal allowance would also increase the cost of the triple lock, which is already seen as unaffordable. Dan Neidle, of Tax Policy Associates, said: “One of Jeremy Hunt’s greatest achievements was cutting the anomalous 60% marginal tax rate on people earning £50,000. If he’s now accidentally creating a 60% plus effective tax rate then that’s most unfortunate.”

PM warns of £1000 “retirement tax” under Labour
In an interview with the Sunday Express, Rishi Sunak warns that Labour has failed to match his new pension “triple lock plus” policy which ensures the personal allowance for retirees is always more than the state pension. The Prime Minister warns that this means pensioners face a £1,000 retirement tax under a future Labour government. Mr Sunak goes on to claim Sir Keir will give in to the left of the party “when it comes to raising people’s taxes” and weakening defence and security and handing unions more power. Elsewhere, the Chancellor tells the Sunday Telegraph that the Tories will not raise any taxes on pensions nor introduce new ones for the duration of the next parliament. Jeremy Hunt said people will “never forget” Gordon Brown’s £118bn raid on pension funds and warns that a Labour government will “look to increase taxes left, right and centre when they get in.”

FIRMS

KPMG plans more mergers
KPMG plans to integrate more offices across Europe after last month combining its Swiss and UK arms. Talks for further mergers could begin within the next year. Jon Holt, the head of KPMG UK, said: “This is in line with the general KPMG strategy. I think you will see a pattern across professional services firms and partnerships toward greater integration.”

RETAIL

Businesses urge Labour to scrap tourist tax
Leading businesses, including Mulberry, Marks & Spencer, Kurt Geiger, and Selfridges, are pressuring Shadow Chancellor Rachel Reeves to eliminate the tourist tax if Labour wins the election. The tax-free shopping policy, abolished by Rishi Sunak in 2021, is costing the economy over £11bn annually, according to the Centre for Economics and Business Research. Despite calls from businesses, the Conservatives have refused to remove the tax. Labour does not support its removal but firms are urging the party to conduct a formal assessment.
  

OTHER

A cull of NHS managers will fund extra GP appointments – Tories
The Conservatives have pledged to sack 5,500 NHS managers to free up £550m a year to pay for tens of millions of extra GP appointments. An additional £640m would be saved by controlling the spend on management consultancy within government, the Prime Minister said.

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